Mutuality and Corporate Governance: the Evolution of UK Building Societies Following Deregulation

Jacqueline Cook

Research Associate, Centre for Business Research, University of Cambridge.

Simon Deakin

Robert Monks Professor of Corporate Governance, Judge Institute of Management, Yorke Professorial Research Fellow, Faculty of Law, and Assistant Director, Centre for Business Reseach, University of Cambridge.

Alan Hughes

Margaret Thatcher Professor of Enterprise Studies, Judge Institute of Management, and Director, Centre for Business Research, University of Cambridge.

jcls Vol 2 Issue 1 (July 2002)

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Abstract

This article is a case study in the evolution of corporate governance forms. It focuses on the UK Building Societies Act 1986, which opened the way for competition between building societies and commercial banks and introduced a procedure for the demutualisation of a building society. We show that the Act brought about a rearrangement of property rights which destabilised the building society form. A wave of demutualisations followed in the 1990s. The main beneficiaries of change were corporate managers who used conversion to boost their earnings and status, and speculative investors ("carpetbaggers") who profited from windfall gains. In return, there were losses to borrowers, in the form of higher costs of loans, and to communities, in the form of the closure of local branches. Far from exhibiting "evolution to efficiency", the recent trajectory of the sector illustrates the welfare losses which can ensue when established corporate governance forms are undermined by "deregulatory" interventions.

Keywords

borrower losses, building societies, carpetbagger , company law, corporate governance, demutualisation, deregulation, economic analysis, management, mutual societies, property rights, welfare losses